Hello, welcome to this Q4 presentation with THQ Nordic. We have CEO and founder Lars Wingefors here to present, and I also believe we have some other interesting presenters with us here today. Quite a good quarter and especially interesting acquisitions. We have Warhorse Studios coming into the group, which is very exciting, I think. We'll hear more about that and also go to a Q&A with all included here today. Without further ado, I'll leave it over to you, Lars. Please go ahead.
Thank you. Morning, everyone. I'm also excited, Oscar. Starting with the Q4 report, we had a stable quarter with revenues close to SEK 1.4 billion. That is up 441% from the numbers last year, driven obviously by the acquisition earlier in 2018 with Koch Media, along the release of Darksiders III in the quarter. The EBITDA was SEK 326 million compared to SEK 156 million last year.
We have a new KPI that we are reporting that is operational EBIT that were SEK 194 million compared to SEK 106 million last year. I'm coming back to that KPI in a minute. The EBIT was SEK 152 million compared to SEK 102 million last year. That's an increase of 49%. During the quarter, we released 11 titles and the absolute biggest being Darksiders III that I'm happy to say it has recouped all development including marketing during the quarter.
It's in the range of the management expectations, but it's not exceeding currently, but we are still bringing out new content and we're looking forward to DLCs during 2019. During the quarter and last presentation, we announced two acquisitions, one being Coffee Stain.
The Coffee Stain group, the third leg under the business area games. The developer Bugbear with the IP Wreckfest. We also made two IP acquisition, Carmageddon in December and Expeditions from Denmark in November. Coming back to the operational EBIT. It's a new alternative KPI, and I'm keen to fairly disclose this for you so you understand. The purpose is providing a fair picture on the underlying operational performance. The thing is that we are having local Swedish GAAP, K3, meaning that we are amortizing all our goodwill.
We've decided to amortize acquisition-related goodwill, surplus values allocated to business areas. Currently, that is the film business area and part of publishing business area and IP rights. That's the three areas we are excluding in this KPI.
Currently, that is the film business area and part of publishing business area and IP rights. We decided to make a straight equally five years amortization period of all this. Meaning in the quarter, we had the operational EBIT of SEK 194.4 million. We have IP rights amortization of SEK 4.3, we have surplus values of SEK 10.4, and furthermore, we have goodwill of SEK 27.6 million.
Mainly that comes from the acquisitions of Bugbear and Coffee Stain that we made in November. That then becomes a EBIT of SEK 152 million in the quarter. The business, games business area. In the quarter, THQ Nordic had sales of SEK 352 million, again, driven by the release of Darksiders III. We also had some minor releases such as A to Glory physically in North America. We have Jagged Alliance that unfortunately didn't hit my expectations. Sunset Overdrive together with Microsoft on PC. We have from our friends here in Stockholm, another version edition of theHunter: Call of the Wild.
In the business area at Deep Silver, we had sales of SEK 187 million. To be fair, Deep Silver didn't have any significant release at all. They were all working and preparing for what's coming on this Friday, Metro. They had a few minor releases such as Broken Sword on Switch, The Bard's Tale on PC, a fireman game called Emergency on PC, The Bridge Constructor compilation on PS4, Let's Sing on Switch, PS4 and on the old classic Nintendo Wii, actually. Finally, Youtubers Life on PS4 and Xbox One. The third leg had six weeks of revenues in the quarter, Coffee Stain. They did not have any releases. They're all coming 2019.
They had SEK 14 million in revenues. In the quarter, we had digital sales representing 41%. That is a bit lower than normal because of the release of Darksiders III. A game such as Darksiders III are having a substantial physical revenue day one, including the sizable collector's editions and various other editions we're bringing out. The new release percentage in the quarter in the business area was 58% of the SEK 553 million in revenues.
The owned titles represented 72% of this SEK 553 million. In the business area partner publishing, we had a stable quarter. We had a range of notable releases, including Farming Simulator 19 from our friends at Focus Home. We had Just Cause 4 by our friends at Square Enix, developed by our friends Avalanche here in Stockholm.
We had Football Manager, that's still a business on physical in Europe, especially Germany, from our friends at SEGA and Sports Interactive. Finally, as a notable release, we had Ride 3 from our dear friends in Milan, Italy, at Milestone. Looking forward, in this release, we have a similar, I would say, fair release list. It's including releases such as Kingdom Hearts III from Square Enix, Monster Energy Supercross 2 from Milestone.
We have my own favorite game, DiRT Rally 2.0, coming end of February from Codemasters. We're having Tropico 6 from another great German company called Kalypso. We have Dead or Alive 6 from our friends in Japan, Koei. Along with many more titles, I would say. Looking to the cash flow. As you remember, last quarter, we had a SEK 744 million in negative operating cash flow. This quarter, we had SEK 455 million positive.
The cash flow after the working capital, obviously from investing activities, was minus SEK 746 million, mainly driven by the acquisitions of Coffee Stain and Bugbear. Depreciations and amortizations and investments. Looking at the depreciations in the quarter, we depreciated SEK 96 million in game development. We're having the same model, as you remember, in the group, being one-third the first quarter, one-third the remaining nine months, and one-third the second year. Two-thirds of all our game development is amortized the first year.
We had other intangible assets, I would say is mainly films, SEK 30 million in the quarter. Again, we're having these acquisition-related amortizations, IP rights, surplus values, and goodwill that I was mentioning under the operational EBIT KPI. Investments in the quarter, we had external game development investments of SEK 167 million. As you can see, the KPI of how many products we have in the pipeline for the future is now a record 77 upcoming products.
The internal capitalized developments was SEK 106 million in the quarter. Investments in other intangible assets, I would say mainly films, this was SEK 30 million, and IP rights was SEK 10.6 million. Finally, the finalized and completed game development, moving the ongoing development that we are balancing and capitalizing every quarter to a finished product and start amortization. That KPI was SEK 162 million in the quarter.
Looking at the balance sheet, we got SEK 3.3 billion in intangible assets. I want to give you some color on that. The finished, completed games that we are amortizing is SEK 258 million. The ongoing game development projects is SEK 1.667 billion. Other intangible assets, mainly films, is EUR 152 million. IP rights in the balance sheet is EUR 70 million.
The surplus values is EUR 151 million. That all origins from the Koch Media acquisition. We have goodwill, mainly origins from Coffee Stain and Bugbear of a little bit more than SEK 1 billion. That's our intangible assets. Cash at bank, we had SEK 922 million end of Q4. Including credit lines, we had a total available liquidity of SEK 2.216 billion end of the quarter. Acquisitions.
As mentioned, we had Coffee Stain. I have Anton here in the room today, and I'm really happy to have Anton, Tim, Johannes, and all the other in the team joining the group. I would say overly positive about having them in the group. We're having a great daily relationship, and I'm surprised by their very ambitious cherry-picking agenda of new upcoming products. I'm really looking forward to the Satisfactory release during 2019.
Just a few weeks ago, they released Goat Simulator digitally on Nintendo Switch. I hope that our friends at Koch Media could help us bring that out physically later in the year. I'm sure they will do that. Also happy to see that our fantastic product, Deep Rock Galactic, that we are publishing from our friends in Copenhagen, are still performing very well and continue to perform very well.
I'm also looking forward to the full release sometime later in the year. We have our Finnish friends. They are working very hard to make a console release later 2019. I think the whole team is very excited to be part of the group now, and we are adding more resources into the development. I would say regarding acquisitions, that's something I really like to do a lot. We have still a long list to do for a good number of years to come. There is competition out there.
There is a lot of Chinese friends, American friends that are also visiting the places I'm visiting. I could see that many people enjoy, could imagine to become part of our group, but it's a bit differently from others. To let really the local management and entrepreneurs continue running their business and really empowering the management, Klemens, Anton, and many others, to make their own decisions. Obviously, I'm speaking together with my colleagues in Karlstad with this management daily. I don't know how many times a day I speak to Klemens.
Sometimes feels like 10x, 15 x, but obviously depends on what day it is. We're having a good time in the group. Stay tuned. Pipeline, as mentioned, we have 77 projects. I think that KPI is up from 55 last quarter. Obviously, Coffee Stain added a bit, but we also signed a few good titles in the quarter that are to be announced. We have 48 unannounced products to be announced in the future. Just to mention a few here. We have our biggest investment so far ever to be released on Friday this week, Metro Exodus.
From what I understand, we will see the criticals coming today and tomorrow. We're having our friends at Coffee Stain having a top-secret project here in Stockholm that are to be announced sometime in the future. I'm really excited about that one. We're having Monster Jam. I would say a fantastic license made by our team, Rainbow Studios in Phoenix, that will be brought out this year. Wreckfest, console, Biomutant from our dear friends and colleagues in Stockholm.
Dead Island 2, Satisfactory mentioned. We have Volition ongoing. As mentioned, we're having a new General Manager at Volition, Mike Kulas, that is also the company founder of Volition, 1996. He rejoined the company just a few weeks ago. He was actually leaving the business when THQ Inc, the previous THQ, acquired the business 2011.
Really happy to have Mike back on track at Volition. He's a great entrepreneur. We're having Desperados 3 coming out sometime in the future. Generation Zero, again, from our friends at Söder at Avalanche in the end of this quarter. Shenmue developed in Tokyo, coming later 2019. As mentioned, we have Deep Rock Galactic from our friends in Copenhagen. We're having our first expansion at SpellForce coming later this spring.
Finally, on this slide, we got as many fans have requested that to play Darksiders on Switch, and we are starting out with bringing the first Darksiders out on Switch, both digitally and physically soon. That is the Q4 presentation. I'm now really excited to welcome Martin Frývaldský up on stage. Thank you, Martin.
Thank you.
Martin is CEO of Warhorse Studios and one of the founders in a way, and I got to know you.
Kind of.
Kind of. You've been there for a long time.
Yes.
Martin will obviously tell you who you are and a little bit more about the business. I will tell you a bit more about the transaction before Martin is starting. Warhorse Studios, we acquired 6:30 A.M. this morning. One year ago, we acquired Koch Media, and the day before that, they published Warhorse: Kingdom Come: Deliverance. I have to be honest, that was a surprise. Not a big surprise, but the game has exceeded, I think, everyone's expectations during now the first year.
Even our expectations.
Last night, you actually were in Prague at the one-year's party, anniversary party, celebrating the one-year's anniversary of the release. The deal, starting with the numbers. We paid a purchase price of EUR 42.8 million, whereof cash was EUR 40.4 million, and THQ Nordic B shares to the founders under lockup of EUR 2.4 million. Because of the success, they have a sizable cash position.
The net cash Enterprise value becomes EUR 33.2 million. I'm really happy to say that the management obviously stays on board, and I feel we have good discussions how to run the business, how we can develop the studio going forward. We discussed a lot about the creative freedom and how important it is actually to continue making these fantastic products.
The team will commence working on the next large unannounced project during second half of the year. They're currently busy or bringing out DLC content. Martin will come back to that in a minute. We are looking to invest into the studio to grow the headcounts. Currently 120. We are approximately, sometime in the future, talking about 160 people.
The financial performance of the studio has been great during 2018, obviously driven by the release. EUR 42 million in revenues and EUR 28 million in EBIT. It's impressive number. The game's still performing well. Obviously, the big chunk or a good chunk of revenues comes from the first release and quarter. I'm really happy to see that the game is still performing very well on various digital platforms.
You can see some numbers on Steam, how many we have sold during each quarter. I'm really impressed and happy to have you on board, Martin, together with the other founders. I will like to leave the word over to you to tell you a bit about the studio and yourself.
Thank you. Also thank you for having us here. It's really a great honor to become part of this group. As you might have known or noticed, this company was founded a long time ago in 2011 by two founders. Besides that, there was an investor from non-gaming industry, and therefore, it's actually very important that we are becoming part of people who are fully committed to gaming. It's really an interesting opportunity for us, and we are looking forward.
Lars introduced already myself, so maybe let me introduce two other key people, two other founders, which is Daniel Vávra and Martin Klíma. Daniel Vávra is, I would say, enfant terrible of the gaming industry. A stubborn person, and thanks to his stubbornness, we have a great product because great products typically you can't produce without a certain level of stubbornness. Martin Klíma, he is executive producer.
He is founder of Altar Games in the Czech Republic. Was very active in, or still have been very active in the industry since 1997. Old, like very experienced person as well. Daniel Vávra, I didn't mention, is director of acclaimed game, Mafia I and Mafia II.
He has nothing to do with Mafia III, but Mafia I and Mafia II. Mafia I especially is his baby, as Kingdom Come is definitely his baby. As Lars already said, we have 120 people currently squeezing in an office originally built for 75 people. Our expected growth to 160 people will require some moving into new offices, which are already well underway.
Moving, yeah.
We are moving in summer, so we are growing. Maybe let's go on the next slide. This is an interesting thing, I guess. The studio was founded in 2011 with only 12 people. The beginning of the studio was actually quite bumpy, indeed. As I said, we had the stubborn founders who wanted to present or to make a game which is really unique.
We are pitching this game, or at that time, they were pitching this game to publishers, and very often heard, "Too realistic," "No miracles," "No wizards," "We want to have wizards." We didn't want to have them. We didn't have to have a single prayer. A single prayer is dead, et cetera. At a certain point of time, the situation was, so who is right?
Either these two founders or kind of the general wisdom, or not general wisdom, but the publisher's wisdom. We approach our investor, who actually backed this project 100% financially, and asked him to test it through the Kickstarter. We knew from the very beginning that producing a AAA game cannot be done with sources from Kickstarter only because it requires typically much more millions than you typically can get from crowdfunding.
Let the people vote with their wallets. This is how we approach the Kickstarter, because once you ask the people on the street, "Do you like this game? Would you like to buy this game?" Et cetera, they will say, "Oh, go, yeah, sure. Don't bother me anymore." But once someone votes with, say, $35, $50, and is willing to wait few more years, that's a vote.
We convince our investor to go to Kickstarter. The original idea was to ask for $500,000, GBP 300,000 at that time. The agreement we had with our investor was, provided we get this, he will keep financing because as I said, he is not from this industry. He said, "Fine. Let's rely on the general wisdom," not on the publisher's wisdom, but the general wisdom of the people.
Voilà, what happened, this was in 2014, and we become the third-largest project on Kickstarter in U.S. ever in 2014. Actually, not ever, but in 2014. We were voted by Kickstarter as one of the top 10 most innovative companies in U.S. It was like, wow. We are now among publishers, but let me say one thing. At that time, we switched our strategy.
Instead approaching publishers and kind of begging for money, as this typically happens to small studios, we were quite well-financed. We decided to stop this talking to publishers. We wanted to develop the beta versions and to bring our smaller baby to a little bit bigger baby, and then present it to publishers again.
This is how our cooperation with Koch Media two years later started. After we finished beta version, we made a deal or signed an exclusive co-publishing deal with Koch Media, and therefore, all the negotiations in last two, three weeks were much easier because we were talking to people whom we known very well. They have known us very well. It was really like a very nice acquisitions and very nice cooperation.
Actually, one of the questions we have got from our original shareholder was, "Do you want to be with these people? Because if you say no, I'm not selling." We said, "Yes, we want to be with Koch Media because we like them, they helped us a lot, and we think that together with them, we can do much more in future." The rest is already history. Last year, we released the game. Even before release, we were voted best of E3 in 2017, six months before release.
We won a gamescom Award at gamescom 2017. The most interesting, very fresh thing is that we have been nominated for Game of the Year on Steam. Steam is indeed a paradigm for digital so far for PC digital distribution, and we finished on the second place. I forgot one thing. This is this external funding.
After our success with Kickstarter in 2014, we thought, "Oh, let's continue with crowdfunding. Let's do this on our own webpage." Here we have 35,000 backers who supported us on Kickstarter. We keep going on our own webpage, and through our own webpage, we crowdfunded another EUR 3 million and got 75,000 backers, which is a great community, big supporters, big supporting group, and this helped us very much later on in marketing.
Although we now are AAA-ish game, the marketing budget at the very beginning was indeed very nice, but still was not like Call of Duty kind of marketing, and the 70,000 people was super great help. Maybe let's go on the next slide. Yeah, a few numbers. Well, quotes, no need to repeat them. I would like to point out a few numbers from this. We have a very large portion of digital sales. I'm very proud for this, that although the industry, as far as I know, the industry or the numbers are not always the super exact, but it's evolving, but it's like 25%.
I still like physical more
You like physical. Okay, sorry. Let's skip this slide then.
No.
Well, we like-
I like both
we like the digital. We like the digital. Maybe that's because we kept the digital rights for PC. Therefore we loved it a little bit more. I think digital distribution is evolving and we certainly can expect a lot of changes in coming years, which will help the developers slash, once the developer is part of the bigger group, the group to keep a bigger margin. Indeed, I am always strongly convinced that the largest portion of the margin should stay with who are creating the content.
Because this is the heavy asset of this business, this content, this IP rights. That's what's happening now on the market is exactly this, that it's coming back to content creators. We like it. We have a 72% digital distribution. Another very important information, which I would like to share with you is the fact that Kingdom Come is very console-ish kind of game.
Typically, these smaller projects or projects which once started as a smaller projects are, in the first edition, a PC project, PC game. Then only afterwards, once you do another project, you become a little bit more console-ish thing. This thing happened to be very console-ish from the very beginning. That's a great thing because indeed, consoles market, playing game on console, it's like buying BMW or Mercedes-Benz. We are very happy that we have a very strong portion of console sales.
You're bringing out some new content as well, aren't you?
Yeah. There are one more DLC coming sometimes here. This will be the last DLC.
Done. Great, Martin. I would like to say that you have two company founders that are creative and really managing the development, but also you joining the company, I think the three of you make this very strong. You are really managing the company very well, and I'm really looking forward to working with you for many, many years to come.
Thank you. Same on our end.
Thank you, Martin. There is some more financial data in the end of the presentation here. Worth mentioning is the excess of purchase price over book value, meaning what will be amortized during equally five years is EUR 22.7 million. The business and the games are still performing well, and we expect it to do so for many years. Well, I don't like to give forecasts, so I'm stopping that sentence there.
Good.
Thank you very much, Martin. Done.
Thank you.
30 minutes later this morning at 7:00 A.M., we announced another acquisition, 18POINT2, a leading Australian partner publisher. I would like to welcome Klemens Kundratitz, the Sorry, it was a late night. Klemens Kundratitz. The CEO of Koch Media up on stage. Sorry. Unfortunately, we don't have our friends from Australia here in Stockholm this morning. It's a bit of distance. Klemens will tell you all about the business. I'll just tell you a bit about the deal.
The enterprise value we paid is EUR 1.9 million. The purchase price was EUR 2.4, whereof cash was EUR 1.2, and shares under lockup is EUR 1.2 million given to the founders that will remain with the company. They have a further earn-out potential up to EUR 400,000. Looking at the numbers for last year, the operating income revenues for full 2018 was EUR 15.6 million, with the EBIT of EUR 2.3 million. That's the business and that's the transaction we're doing. Klemens, the word is yours.
Thank you for using an Austrian to present an Australian business. I will do my best. We have been operating in Australia through partners for many, many years. We have used a range of Australian companies, and we have gathered over time, experience and got closer to the market.
We have looked around how to make this market more strategic for the group. I'm glad that we found a deal with 18POINT2, being a leading Australian operator in the field of local publishing. This will not only benefit our own IPs and our own portfolio of products going forward, but also our partners that we work with on a long-term basis. We can now offer them not only the service and the attention that they know about Koch Media in many European countries, we now can offer that also in Down Under.
I think that is a real value internally as well as for our partner business. At the same time, in a market like Australia, there is a lot of development talent, and there is no local publisher present on the market. We believe that having foothold there locally will unlock opportunities for us as a group to engage with Australian development and publish them on a global scale. The first step in that direction has already been made. We have signed a development project some time ago, but it will be announced later.
I would say it is a natural extension of our activities as Koch Media in our existing markets. We have local offices, and these local offices, they do a very strong job for our partners and for our own IPs to be present at the market, to be talking directly to the gamers in the market, social communities, events, marketing, PR.
Everything that we are doing in these markets, we are now doing in a new and very interesting market. The Australian market is very similar in size and in its player base to our European markets. It's a natural extension of what we know and what we are strong at. Combining the existing products that our friends at 18POINT2 and now Koch Media Australia have with our pipeline will obviously make that company a clearly leading player in Australia. If we just turn to the people.
The company is headed up by Roger Clark. He used to run Warner Bros. Australia. Over the last two and a half years, he has built 18POINT2 to a local publishing operator. Together with his team, Kaan Hewitt is his CFO and an experienced team of strong publishing staff. We are a licensed partner for Sony and Nintendo, and can manufacture stock locally. We work for many years there with leading companies like Warner, Techland, Milestone, but many others. We have full access to the Australian as well as New Zealand markets.
Both the opportunities, digital as well as physical opportunities in Australia, we can fully exploit with our local team. When we look at the position of 18POINT2 on the market, this is a ranking of publishers and distributors for physical software in Australia according to official data. We have been ranking number six in the first half of last year. Above us, there are obviously a lot of global publishers, but as a distributor, as a physical operator, we are clearly number one there.
That position will only increase. Just to remind you, we have these companies with no names over here that represent our European local publishing entities, and we are just adding Australia now into the mix here. Last but not least, it's noteworthy to say that the Australian market is in a very robust position. There's a growing console base there. Overall, I think it's fair to assume that the market will only grow from the current base.
Thank you, Klemens.
I think the manufacturing you're mentioning is Sony and Microsoft, not Nintendo.
Sony and Microsoft.
Okay. Thank you very much. That is for today's presentation. I could imagine that Oscar has a few questions.
As always.
As always.
I think we'll start with a few questions from me, then also later leave it over to the floor and to the telephone call as well. First of all, let's talk a little bit about the quarter that has passed. Obviously, Darksiders III being perhaps the key release of the quarter, if not the year for THQ Nordic. Personally, how satisfied are you with the release? Had you expected slightly better reception?
Well, I don't like the word satisfied or really, we had expectations, I think we have given a game to the fans that many of them like, and I'm proud of it. They made a really good game at Gunfire Games together with my team in Vienna. Unfortunately, the game was brought out in a very busy season.
The competition was really intense in the middle of Q4. I think that is kind of made it harder to overachieve on the expectations. The Metacritic was hammered by some bugs and early issues that is, I would say, mainly fixed now. Darksiders is Darksiders. It's a hell of a game. It's hard to play. It's not Fortnite or Mario. If you play it on hard, it's a real challenge. If you're not up for it, the fans could dislike it. If you're up for such a challenge, you really enjoy it.
On Metacritic user reviews, we can see a positive 7.5. On Metacritic, unfortunately, it's just 68. Perhaps it would be different if it was out today, that's the rules of the industry. You bring out a finished product, bug-free, then you get good reviews if it's a good game. If not, you get hammered. Well, it's okay, Darksiders will continue to sell for many years to come. Especially this year, we're bringing out new content on DLCs, stay tuned.
Yep. You mentioned in the report, I think, DLCs, further DLCs coming out during the year. Can you say something perhaps about how much of the total sales you think may have come in Q4 and what you expect for 2019?
I understand you'd love to have that number, Oscar. Unfortunately, I can't have that guidance. I would say we would have a notable revenue also 2019. DLCs will sell, but most importantly, normally, if you bring out DLC program, you can, in the end of the period, make a game of the year edition with all that content, then you can bring out a new physical SKU, a new digital SKU that will add more revenues.
You will also, on digital channels-Console as PC and digital channels get the visibility on the storefronts that will really help the sales. Obviously, this was a $59.99 product. I think when this is discounted in promotions, it will hopefully sell good numbers during the year and in the coming years at a lower price.
Yeah. Final question on Darksiders III, let's get that over with. What are your plans for the IP going forward? Should we expect a Darksiders 4?
Darksiders is one of our main IPs at THQ Nordic, it's one of our first acquisitions that really helped build the business. I have a deep love for Darksiders and the team around it. I'm sure we could please fans in the future with something. We're starting out with Darksiders on Switch, let's see what happens after that.
Yeah, fair enough. Going over to Partner Publishing, another strong quarter in Q4, I'll say on top line. Despite, I would say, one or two slightly weak releases, at least reception-wise. Can you shed some light on what drove revenues in Q4?
Partner Publishing is just a wide range of products. As I mentioned, four big titles here, that is obviously driving the revenues, normally it's hundreds of products we're bringing out to the market. In the respect of our partners, I don't want to comment on their business on individual titles. I preferably say, if we have a stable release list.
Just a final question on earnings as well. Is it possible to say something about the profitability between segments? Obviously, high volumes in Partner Publishing, for example.
Partner Publishing is a stable business that is on a yearly basis profitable. I think 2018 has been a good year, a stable year for them. Deep Silver had, as you could see, SEK 187 million compared to other quarters is not amazing revenue, they didn't really have any releases.
Profit-wise, we've decided to just disclose one EBIT for the group. It's not only because I don't like to disclose a lot of numbers, it's also a lot of functions are group functions, especially Koch Media is one company. It's not three companies. On the base of that, you're ending up in a discussion of where you allocate costs, rather not doing that, it's one EBIT for the group.
I think we saw with the acquisition of 18POINT2 the profitability of that Partner Publishing business. Has it been on a similar level, like 15% in 2018 or slightly lower, perhaps?
I think Roger had a good year in Australia. I'm sure he will have many more good years, I don't want to comment on his profit margins.
Great, moving on to, I think what everyone is really excited about this week as well. More exciting stuff. Metro Exodus released on Friday. I think the first review is now out with 90 out of 100. Good start. What sort of reception, review-wise, would you be happy with?
Oscar, let's wait until end of the day.
Fair enough. What do you think is the game's strength and weaknesses in terms of reception and reviews, obviously?
Let's wait. Oscar is just a few hours ahead of us. I think the market will make the
Okay.
Yeah.
The big news leading up to the release has been the switch from Steam to Epic Games Store. It's the new platform. A bit of a risk, perhaps. Both pros and cons. Clearly content is really king now with a lot of companies fighting for good content. What do you expect just, logically, I guess volumes should be lower given that it's a new platform, but on the other hand, you'll get a higher share of revenues. Is that a fair assumption?
Obviously, the agreement between Epic and us, I can't go into the details because it's a confidential business agreement. I can't comment on the Metro Exodus terms, even though you'd love to have them as an analyst. In general, I could say that the business is changing, the industry is changing.
There is new platform, there is new technologies coming to the market. That will change business models. From only physical to only partly full game download, this will change to subscription and to other business models. We're getting paid differently. Obviously, as a group, we have always been keen to support new initiatives to reach consumers.
Potentially, when new big players are entering, they are willing to invest to get a market position. That could include people paying differently than we have been having in the history. I'm expecting that to continue this year and the coming years. There is new players, as mentioned already publicly, such as Google and others, that are coming with new platforms and tech.
I think it's a very interesting industry at the moment. "Metro Exodus," Epic Games, yeah, I think it's a sign of that exciting moment in the industry. I have all the respect for fans for all our products, and I know a lot of fans love to play it on their own platforms. This has not been easy call that Koch Media and together with me made on this. Now it's coming out on Friday.
Very good. It seems, of course, it's a risk/reward decision, I guess the conclusion is that you feel content with the reward compared to the risk.
I can't comment on the terms. I think in general, we're embracing that we, as a content holder, could keep a higher percentage. The general business terms is that 30% of the revenue goes to the platform holder. If there is a platform saying, "We can distribute your games to an audience for a lower percentage," we're obviously very interested to embrace that company.
Yep. Looking a bit into 2019, which I think we have to do, one thing I noticed is that the publishing pipeline looks quite strong here also in Q1 2019, with a lot of big releases. Do you expect another strong quarter, volume-wise?
I haven't used the word strong. That's your word, Oscar. I use stable and similar. I think Q1 has a similar release list as Q4.
In general, the feeling for 2019, I guess some details have been discussed with the pipeline for, perhaps, the second half of the year as well. Are you comfortable with the release list compared to 2018?
Well, in general, we have 77 game projects. Many is announced already that is coming out this year, but we have a good number or a notable number, or a few titles not announced that are also coming out in 2019, both within our own business segments, but also obviously notable releases in the partner publishing business area. We're still early in the year. There is many trade shows. I'm really looking forward to, hopefully, the most busy GDC in San Francisco ever in March, E3, gamescom, Tokyo Game Show. Stay tuned.
The game segment also, specifically. So far, the big releases that are announced for 2019 are mostly games that have been announced quite a few months ago or have been delayed to 2019. I guess there should be a number of medium to larger titles also coming out and being announced soon.
That is our business: to constantly make the best use of our communication methods, trade shows, the teams, using various occasions to communicate new announcements of products. As stated last year, I am sending the message to all our teams that quality is key. We need to release product that are to the expectations of our fans, that are as good as possible on day one.
That is obviously something you are working in the mid, end of the development to make sure you have the quality, the polishing, and we need to give the time to the developments team to polish the products. Sometimes it takes a long time to do that.
I have a few questions on Warhorse, which I think is a very interesting acquisition and interesting company. Perhaps we could have Martin up on stage again, if that is possible.
Martin are very welcome to answer questions. As long as there is not too much financial questions, I will have them asked.
Never. First of all, a few questions to you, Lars, about Warhorse, just to clear some details. I suppose that it will be a separate leg in the group. Is that correct? Will it be under one of the other-
It will be consolidated in the Koch Media group.
Okay. Then there's been some confusion, I think, in the quarter regarding the name of the group and the name of THQ Nordic segment.
A bit.
How are you progressing on a name change for the group?
I think changing a name is a thing that I announced last year. I think now is the time. Sooner rather than later, I would say, that process is taking place. I would expect myself and our team working on this to have something sooner rather than later. Obviously, it's just a name, but I think the confusion that we recently, past weeks, has been having between the THQ Nordic publishing entity in Vienna and the mother company, it's a bit confusing to the market. Obviously now is the time to change this.
Great. Over to Martin then, regarding Warhorse. First of all, what are your plans for 2019? You mentioned one DLC coming out quite soon. Should we also expect a game of the year edition, perhaps?
Well, the only officially announced is DLC four, so I can't comment on the other products. Obviously, this is 120 heads team, so we will be working, and we already are working on a yet unannounced project. It will take some time indeed to deliver this project, but yeah. For 2019, it's DLC four as the kind of key thing. This will be actually quite large DLC.
We will give them a long time to make. Whatever they make in the future, they will get the time and creative freedom.
Typically, a single-player game of this nature, it takes about 18,000 to 20,000 man months to produce it. All our projects are rather long-term projects.
We don't need to mention a number and years today. This
It definitely depends on the size of the team.
It's a lot of months. I'll do some counting when I get back up. Can you say something about whether this is an entirely new IP or if it's a sequel?
We will use the strength of the studio. Sorry, Martin.
I wouldn't say it better.
More generally, would you consider yourself as a RPG-only studio? I mean, that's your expertise, obviously.
This is what we love. Mafia 1 from Daniel Vávra was an RPG. This is an RPG. This is something which we think we are good in.
You are fantastic
Just one second. Thank you.
What do you think has been the key for success for Kingdom Come specifically? It's become almost like a cult classic among RPG fans.
Well, I think that saying that something is different, it's like a little bit. It is. It actually was and is a different project. There is nothing like that on the market. That was the key selling points. Realism, that's very unique thing. Our combat system is also a very unique thing, realistic combat system.
Actually, we have released, together with our last DLC, a movie about how we done our combat system. It's a one-hour movie with stunts, who taught us how to do the combat, and we kind of took their combat, or the realistic historical combat into the game. I would be happy if you watch this. It's a real interesting experience, how we were kind of transferring the 400 or 500-years-old kind of combat systems into the game. Combat, realism, that's the key selling points.
I guess it is quite a hard game, initially quite a few struggled, perhaps. Now the ratings are very good. How much have you worked on improving it during the year, and how many people have you used for that? Is that the most of the studio?
Well, it was most of the studio. Our strategy was that we would like to kind of set a new IP, new franchise, and you cannot do it with a buggy game. Provided we were thinking about something like, okay, let's do DLC, let's let people believe that we are good in this, you cannot leave the footprint behind you, which is like these people are producing something which is buggy or not perfect.
It's a strategic consideration of whether some people or some dev studios release the game and just let it fly, then they jump on something else. It actually materially and financially can eventually even work. We didn't want this.
We wanted to polish it, spend as many months on the polishing the game, adding some new content as possible to convince gamers that it was worth investing or worth buying this game, and please them with additional content, by producing additional content, support original game. In fact, anytime we release a new DLC, it supports greatly the sales of the main game. We still are selling the main game, although it's a years old project, one-year-old product now. In the gaming industry, having a one-year-old game, it's like watching a 10 years old movie.
I like old games, Martin, as well.
Yeah, this is how we approach the development process and our new marketing and sales strategy.
Okay. Just a final question before leaving over to the floor. Finally, Martin, what do you see as the main benefit joining the group as opposed to another company or investor?
Well, there is certainly a lot of competence we didn't have before and don't have as yet, which is indeed marketing and sales competence, and there is also a tech competence and production competence on a Koch/THQ side. There are a lot of areas where we can find cooperation, I'm absolutely sure.
Sure.
We will be identifying these opportunities as we speak. I think we signed at 6:30 P.M. today, I think we are starting during lunch now.
Yes
working on these things. There's a lot of things we can do together. I'm absolutely sure.
I think hopefully, personally, we are sharing a lot of the same ambitions.
Absolutely
I have a great trust for you and obviously you're working on a daily basis with Klemens and his team in Munich as well a lot, but you have also been to Värmland. There is a lot of culturing between the countries. All right. I think we're ready for a few questions from the floor. Yes.
Hi, Pierre Mellström here from Handelsbanken. How long does it in general take to port a game to the Nintendo Switch?
Depends how many you are. Some products we're having, it's just one person, and that takes a year, two years, six months. If you have a porting team that is used to it normally takes up to 3-6 months.
Okay. Just a question, is Biomutant still on track for this summer?
Biomutant is done when it's done, and I'm just keen whenever we're bringing that product out, that is now summer 2019, but if it comes summer 2019, and with a specific release date, I'm just keen that it's polished to the quality of the expectations of the market.
One last question. On Metro Exodus, given the Epic Games deal and that it was one day available on Steam, or if you pre-ordered it, you could buy on Steam, and now also with the sort of previews or reviews you're getting, would you say the uncertainty is lower ahead of the Metro Exodus release compared to how you normally see it ahead of a release?
No. It's a good question, Pierre. I'd like to say that let's wait for the release on Friday.
Thank you very much.
Can I just clear up a point? Sorry, Ken Rumph from Jefferies. From Martin, my arithmetic was 20,000 hours divided by 160 people and 12 months is 10 years, which sounded like longer than you were thinking. Did I get the wrong number or is my arithmetic poor?
I think you got a high ambitious.
Got to be high.
I supporting a high ambitious, so don't expect the next unannounced project soon.
Yeah.
I will let them take the time it takes to make ambitious project.
Cool. Okay. I could ask then a more general question. Looks like we're having the next, maybe the last, maybe without a hard disk, despite your love of physical generation of consoles next year, 2020. Does that affect how you think about scheduling some releases, whether you think, "Okay, we're going to do an exclusive deal with a platform, or we're going to wait for the new technology?
That is obviously something we managing within the group, how to manage the console cycles and how you do it in the end of the current generation and how you're entering a new generation with a potential new generation. I think we all need to wait and see if there is a new generation and how that will look.
Okay. Regarding take rates, Steam, Epic, Discord, and so on, are there any games that we should think from a Steam point of view, obviously Steam has a strong position, lots of people have Steam accounts, it's going to be quite sticky. Are there notable games that are going to pass the kind of SEK 10, SEK 50 million thresholds, assuming Steam doesn't move its prices again, and kind of get into the 25%, 20% take rates?
Obviously, I can't disclose it, Ken, our budgets on specific platforms in the future. I'm always welcoming lower percentages and more share to us as a content creators that we can bring into the development teams that could make greater products.
Okay, final question on that. Is there a likelihood of either bigger price differentiation for PC versus console or of the console platforms also coming under pressure to change the take rates?
I think that is a very interesting question. I think no one knows. No one knows what platforms there will be in five years. No one knows exactly how the business model will look like. I just know that as a content owner, IP owner, we are well-positioned in the market to capitalize on this. Okay. Thank you.
Any further questions from the floor? Otherwise, let's check the telephone.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypads now. Our first question comes from the line of Predrag Savanovic of Nordea. Please go ahead. Your line is open.
Yes. Thank you very much. I have a couple of follow-ups on the Metro deal and with Epic. The seamless reception you've gotten from the move towards Epic with Metro, some credit is a good competition and too large profits for Steam, especially on the developer side, and even Take-Two said something on this yesterday.
Can this have any effect on the long term for you, how the brand can be regarded, and both from players in terms of sales and with the value proposition you have towards developers, both good and bad? Also, is it safe to assume that you get some kind of one-off for this deal? The same question then goes for Coffee Stain, where you made a financial forecast predominantly on IPs that are yet to be released and also to be released on Epic exclusively.
Thank you, Predrag. I think we have a hard time hearing you on the line. I am sorry, I have to say it again. I cannot give you any financial forecast or tell you anything about the agreement between Epic and Coffee Stain. You are right, we made a financial forecast of Coffee Stain Group for the next coming financial year. That was what we did, and we did not confirm any linking of that to anything else such as Epic or Satisfactory. We just confirmed the financial forecast.
Can I ask something on the Dark sider and the Origin Access Premier, where you have made a deal and how that deal is structured? I mean, do you get a recurring subscription fee depending on how many people play it? Or is it also one-off there to get the game available on their platform?
I am very sorry, Predrag, the line is so bad, I cannot really hear you. I think you, Predrag, and all of you are very welcome to email us. We will try to answer any questions you have on the report.
All right. Thank you. I will take it off the phone.
Yeah.
Thank you.
Thank you.
Okay.
S eems again, if there are any further questions, please dial zero one on your telephone keypads now. There are no further questions from the conference line.
Okay. I think that's it from the floor and from me, actually. I'll leave it over to you if you want to conclude. Thank you very much for letting us being here at Carnegie. Yeah, thank you.